Hourly or Flat Rate: How to Charge For Your Time

One of my favourite readers, and former guest poster Irvin emailed me recently. He suggested I write a post about how I charge for my services. It was a great idea, so here we are.

Maybe I'm alone here, but I find this to be a very painful topic. Just charging money in general is painful for us introverts. Asking for raises back in my employee days was excruciating, and that was (at most) once a year. After that, I'd just submit my hours and get paid. So, apparently my brilliant idea was to go out on my own...where I'd have to ask for money each and every month. And, if I want to increase my rates, I get to "ask" dozens of people instead of just one boss. Great idea Eric!!

I won't go down the rabbit hole of "how much should I charge". That's its own painful topic, so let's just tear off one bandaid at a time.

Today we'll talk about hourly vs. flat rate pricing. We'll go through some pros and cons of each, and I'll tell you a bit about my experiences with both over my career.

1990-2009

I think I've mentioned this before, but I got paid $4/hour at my first bookkeeping job. To add insult to injury, I got paid $5/hour to clean the office over the weekend. For the majority of my bookkeeping career, I haven't had to set my rate or decide between hourly or flat rate. I would get hired for a job, they'd spell out the terms, and I'd either take the job or not. Over the years it's been a pretty even split. Sometimes I'd get paid by the hour and other times they'd have $x/month allocated to that department. This was true when I was an employee and when I was a subcontractor.

2010-present

2010 was quite the year. In December 2009 I had a full time job in an office and a few smaller clients I took care of on the side. After the Christmas holidays were done the business I had managed was closed down. I was now working from home with only those few smaller clients, and no idea where to go next.

One of the big struggles was (and still is) how (and how much) I would charge for my services. I think the biggest hurdle in this generation is the amount of competition. Back before my business was online, I only had to figure out what the handful of bookkeepers in my city were doing. Maybe one was charging as little as $20/hr and another was as high as $50/hr. I would figure out where I fit within that group and charge accordingly.

Suddenly in 2010 I had people on oDesk charging $5/hr and accounting firms charging $100/hr for (at least on paper) the same services. Other sites were offering tiered flat monthly rates with comparison graphics like the ones you'd see when trying to decide which version of Office you were going to buy.

How the heck am I supposed to decide now? I had a hard enough time charging $25/hr when I knew someone in the same city was charging $20/hr...even if I knew I was more experienced. Now I had to compete with $5/hr and the $250/m "Bronze Package". Ugh.

Hourly

In this scenario, you are literally getting paid for your time. You keep track of how many billable hours you work for a client each month and charge for those hours x your hourly rate. Once you know how much money you need to make each month, you either divide it by how many hours you can work to determine your hourly rate, or divide it by your hourly rate to determine how many billable hours you have to work each month.

Pros: For me, I know I'm getting paid for the work I did. For the client, they know exactly how much time you're spending on each aspect of the work.
Cons: For me, over time, I'm going to get paid less if I find ways to be more efficient. For both of us, the total invoice each month is going to fluctuate so it's hard to budget for these amounts. I could get stuck without any revenue one month, or they could get a big surprise one month if I had extra work to complete.
Opinion: I like this method when getting started with a new client because it's impossible to know how much time a job will take you until you're in it. Once I've spent some time in their books I usually like to transition to the next method.

Flat rate

In this scenario, you establish a flat rate. This can be a flat rate per job or a flat monthly fee or minimum retainer that gets charged every month, regardless of how much work actually gets done.

Pros: The big pro for both sides is consistency. I know the minimum amount I'm making each month, and the client knows how much my services will cost. It also provides an incentive for me to improve efficiencies. If I can deliver the same quality of service in less time, this is a great way for me to increase my hourly rate without charging the client more money.
Cons: The big con here is getting the numbers wrong. If I set my prices too low, I'm constantly working for a reduced rate. Set them too high, and the client feels bad about the value they're receiving. If the work fluctuates greatly month to month, this can create a constant renegotiating which is what I wanted to avoid in the first place.
Opinion: I like this method for my established clients who have very similar needs month to month. Hopefully I have set the prices correctly based on my discoveries while initially billing by the hour. Finding the right flat rate is one of those skills that you improve over time.

Why is this so hard to figure out?

It’s hard because it’s not consistent like when you’re an employee. As an employee it’s easy to agree on an hourly rate because you usually know the # of hours you’ll work each month. Plus, employees don’t have billable and unbillable hours. If they’re at work for 8 hours, that’s what they get paid for. As a business owner, the amount of hours I get paid for each day varies. Some days I’ll spend 8 hours working on client projects that are completely billable. Other days I’ll be running errands, writing blog posts, and doing my own bookkeeping. Those days I might not generate any billable hours.

I love the "look" of tiered pricing. I have seen quite a few bookkeeping sites that offer something similar to "Bronze", "Silver", and "Gold" packages. That's such a clean, simple way to price your services...on the surface. Here's an example of the Bronze package. This is completely made up, but loosely based on what I've seen.

Bronze Package - $250/month - includes:
* reconcile 1 bank account
* AR and AP tracking
* basic financial reports
* payroll for up to 2 employees

I like the simplicity. A potential client can choose your services like they’d choose a combo at a drive thru.

There are some issues though. With this example, do you limit the # of transactions? I have clients who have 10 transactions running through their account each month, and others who can have more than 300 transactions each month. That's a big change in workload. Do you set transaction limits in your tiers? How do you charge for overages? What if those 10 transactions require 5 phone calls to get clarifications from your client? Do you charge extra for the back and forth?

Conclusions

After all these years I still don’t have one good answer that will fit everyone’s situation. I don’t think there is one. Here are some suggestions I have, which will include tips specific to fellow bookkeepers.

  • Get in the habit of tracking your time. You can use apps like RescueTime that track this in the background, but either way track how much time you’re spending on all of your daily tasks. The more you know the better you can estimate future projects.
  • Figure out flat rates for small, short term projects. For bookkeepers, this could cover things like tax returns, training, setting up software, and basic reporting.
  • Charge by the hour for at least the first month for new long term clients. You can’t know how complex a project will be until you get started. Most business owners don’t know how long they spend doing their own books, so the estimates they give you are rarely accurate. Plus, the work they’re doing might not be the same as the work you need to do. Get to know their system and then (optionally) quote them a flat monthly rate going forward.
  • Base your monthly rate on the full year. Don’t forget about the extra work you’ll be doing during busier seasons. For bookkeepers, don’t forget about year end, quarterly reports, and tax filings throughout the year. Add up the hours you think you’ll work in a full year, and then split that up over 12 months.
  • Be very clear about what work is included in your rate. If you are presented with work that will be outside the scope of your regular fee be upfront about potential overages and get the clients approval before proceeding.
  • Give yourself a bit of breathing room with your rate. If you set your prices too low you won’t have time for small surprises that will (and they will) come up. Think about your cellphone bill. People would rather pay for a bit more data than they need than paying the bare minimum and then constantly getting charged overages.

As you might have figured out from the sheer volume of this post, it’s a topic I spend a lot of time thinking about. Based on my research with fellow bookkeepers, there isn’t one (or two, or three) answer either.

What about you? If you are a bookkeeper, or anyone who charges for their time, how do you do it? I’d love to hear your opinions. What’s worked, what hasn’t, and what does your ideal system look like?

Dropbox isn't a backup solution

On a post I wrote last week about Streak for GMail I included a screenshot. That screenshot was showing off Streak's functionality, but it featured an email I received from Dropbox.

Dropbox has a really handy feature called Selective Sync. With this, you can choose to only have certain sub-folders synced on a given computer. I've got an old(er) Dell laptop that I use for QuickBooks. It's from 2010, but a couple years ago I bumped up the RAM to 8GB and installed a 120GB solid state hard drive. While the performance boost was amazing, the small hard drive meant I had to be more proactive about managing free space. So, even before Dropbox bumped up the Pro accounts to 1TB, I couldn't sync all of my sub-folders to the PC.

Fast forward to last week and Selective Sync is the subject of an email. Here's the first paragraph.

We're reaching out to let you know about a Selective Sync issue that affected a small number of Dropbox users. Unfortunately, some of your files were deleted when the Dropbox desktop application was shut down or restarted while you were applying Selective Sync settings.

One strange thing about the email is that I haven't made any changes to Selective Sync in weeks. I think I removed one folder on my PC last month when I started to run out of hard drive space. So, unless somebody was making unauthorized changes to my account...from my PC, they took a very long time to let me know about this issue.

The result?

dropboxemail

As you can see, they lost almost 150 of my pictures. Had these been my only copies, it's very possible I'd be losing my mind right now. It's a good time to remind you, and myself, that Dropbox isn't a backup solution. It's a really handy way to sync your files across multiple devices, but it's not a backup solution. A service like Dropbox makes sure all of the sub-folders in your account are identical. While that's handy when you need to make sure the files on your computer are available on your phone...it also means the files you delete on your computer also get deleted from your phone.

I've had far too many backup failures over the years. I've had external drives fall off my desk (thanks kids), CD's and DVD's get scratched or just plain stop working, and countless internal hard drives meet an untimely demise. I have lost music, movies, photos, and work documents. It doesn't take too many of these to realize that any one backup solution isn't enough.

So, before I hop down off my backup soapbox, let me offer a few tips. These are important to keep your own files safe. It's that much more important when you are also responsible for your client's files too.

  1. Have an external drive at your desk that is set to backup your files (at least) daily. If your internal drives fails, this will be the fastest way to recover your files.
  2. Syncing services like Dropbox, Box, or SugarSync are great to keep files in sync. If you are robbed or you lose your internal and external drives in a fire, pulling down your files from these services will be the next fastest way to recover your data.
  3. Setup an offline backup solution. I use Backblaze, but there are several options here like CrashPlan or Carbonite that provide cloud-based backup, or you could even have another external drive that you keep at a friend or family member's house.

There are also plenty of other tips that are media specific. I'm super paranoid about losing photos, so I have an app (CameraSync) on my phone. Every time I take a picture, it automatically uploads the photo to Dropbox, Flickr, and Google Drive. Since I also sync Dropbox and Google Drive to my desktop and laptop...and then backup my computer daily, there are all sorts of copies of my important files. Lots of devices and cloud services would all have to collapse before I needed to worry about losing my files.

Alright, hoping off the soapbox now. Be careful out there kids.

Streak for GMail

I wanted to finish up the week of picks with something that covers one of the most frustrating topics I can think of...email. 20+ years after getting my first email address and I still haven't figured out the perfect system. The part of me that grew up with apps like Eudora and Outlook longs for the folder structure and advanced features of a desktop app. The part of me that has been using iPhones, OSX, and Chrome for the past several years prefers the ubiquity of GMail's web client. It seems to be a constant arms race to see which side will win my attention, so anytime I find a utility that makes this part of my workload easier it gets my full attention.

Today my pick is Streak for GMail. The truly ridiculous part of this pick is the fact that I'm only using one or two of the features available...and not even the main features. I think this is an add-on I'd like to do a full post on in the future. For now I'd just like to tell you about the features I'm using.

Streak is a full (free) CRM solution that plugs right into GMail. Once installed you can setup departments, projects, and stages to track any actionable email that shows up in your inbox. This can be really powerful. You can setup different departments (sales, marketing, support) that get shared with different members of your team. If most of your new tasks first show up in email, and you want to keep your task management right inside GMail, this is a great system. I've used Streak's full set of features on a few occasions, and it's very easy to use. I'm a diehard OmniFocus user though, so I don't really have the need for a separate task management system.

The first feature I use quite a lot is "Send Later".

sendlater

There are a few reasons you'd want to use this. If you do a lot of late night work like I do, you might end up sending a lot of emails to clients or colleagues at 1:00am. This is usually not an issue...but there's always a chance you're sending one of these to someone who forgot to mute their phone. Suddenly they're getting a loud email notification on the phone 3 feet from their head while they're trying to sleep. Ok, probably not usually an issue, but "send later" will let you schedule all of these late night emails for 8:00am.

The biggest way I use this is as a reminder to my future self. I'll email myself something like "check to see if customer x's payment showed up" and schedule it for next week. A week later I'll have a new email in my inbox with the helpful reminder.

Earlier this year Streak added a new feature that really got my attention.

Snooze:

emailsnooze

Email snooze lets you send an email out of your inbox, only to have it reappear at a later date. The one handy additional setting here is the checkbox "Only if no one replies". I use this in one of two ways.

First, if I send an email to someone where I am expecting a response, I will snooze this for x days and check the box. If they reply before x days I can follow up and the email won't show up again to remind me. However, if I don't get a response, the email will reappear in my inbox to remind me to check back with the recipient.

Second, I will snooze an email I receive if I don't have time to properly deal with it in the moment. Like, for example, this email in the screenshot I got from Dropbox informing me they lost some of my files (oops). I need to figure out if/where my other backups are before I completely freak out, so I'm going to have this pop back to the top of my inbox tomorrow.

Sometimes I want to clean up my inbox so all that remains are the things I can deal with today. Other times I'm waiting for additional information before I can respond so I'll push it out a day or two. That way it shows up at the top of my inbox at a later date, and avoids getting buried at the bottom of the pile.

Alternatives

There are 2 other services that I've used in the past for this.

NudgeMail - This one is not only free, but dead simple to use. Let's say you want to remind yourself of something on Monday. Here's what you do.

To: monday@nudgemail.com Subject: Don't forget to do xyz. SEND

Yep, that's it. You can also send the email to nudge@nudgemail.com and use Monday as the subject. Either way on Monday you'll get back the contents of the email. The one limitation here is that it doesn't support attachments. If, for some reason, you really need to have an attachment here I'd suggest including a link to a file stored in Dropbox or Google Drive instead.

Boomerang - Boomerang is another GMail add-on with similar features. It adds a button to your GMail UI, similar to how Streak does. It's free for up to 10 uses per month. If you want to use it more often there are paid tiers. Personal is $4.99/m and gives you unlimited uses with an @gmail.com address. If, like me, you have GMail setup with your domain, Pro is $14.99/m...which also gives you recurring reminders. There's a $49.99/m plan too but that seems crazy for a GMail add-on, no matter what features they include.

Streak